Jawboning Works In Europe Too

European markets are up huge today. As of this writing, Finland +2.79%, Germany +2.15%, Greece +3.33%, Netherlands +2.02%, Norway +2.47%. All in knee-jerk reaction to Trichet's comments not to underestimate the EU response to the debt crisis, inferring that it will do whatever it takes to maintain stability. The market is interpreting this to mean bond purchases. CNBC is calling it the Nuclear Option. It is nothing more than jawboning.

The best thing about government bureaucrats is that they speak the same language everywhere. We are fortunate that this is so. It makes our understanding easier. The widespread believe in the omnipotence of government leaders is so pervasive that jawboning is publicly recognized as a policy tool. Take note of Fed chairman Bernanke's infamous Jackson Hole speech where he flatly admits this:

"The Federal Reserve retains a number of tools and strategies for providing additional stimulus. I will focus here on three that have been part of recent staff analyses and discussion at FOMC meetings: (1) conducting additional purchases of longer-term securities, (2) modifying the Committee's communication, and (3) reducing the interest paid on excess reserves.

". . . A second policy option for the FOMC would be to ease financial conditions through its communication, for example, by modifying its post-meeting statement. As I noted, the statement currently reflects the FOMC's anticipation that exceptionally low rates will be warranted "for an extended period," contingent on economic conditions. A step the Committee could consider, if conditions called for it, would be to modify the language in the statement to communicate to investors that it anticipates keeping the target for the federal funds rate low for a longer period than is currently priced in markets. Such a change would presumably lower longer-term rates by an amount related to the revision in policy expectations."

When government leaders and central bankers resort to jawboning as a policy tool and a strategy for providing additional stimulus, you can be sure they're out of tools.

S&P futures are up strongly this morning. I have targets of 1200, 1207, and 1210 on the ES. I welcome this move, as it takes us out of the noise of the middle and out to the edges where I like to go to work.